Following this week’s en banc D.C. Circuit ruling in Wagner v. FEC, some commentators have suggested that the federal ban on contractor contributions should reach funds given to super PACs that make only independent expenditures. Over at the Election Law Blog, Public Citizen’s Craig Holman goes a step further, suggesting that Securities and Exchange Commission Rule 206(4)-5 extends beyond contributions to covered candidates to include super PAC contributions. In Dr. Holman’s words:
Such an interpretation is not only appropriate for the federal pay-to-play law, but also for SEC Rule 206(4)-5. The SEC has not yet made it clear that the SEC pay-to-play rule applies to super PACs, but the agency has routinely applied the pay-to-play rule in other situations where it deemed appropriate to close evasion of the pay-to-play rule.
Dr. Holman’s claim is speculative on its face and lacks any citation, so it is difficult to know precisely what he has in mind. But it should be noted that his view is contradicted by the SEC’s own guidance.
Rule 206(4)-5 prohibits registered investment advisers and their covered associates from making most direct contributions to certain state officials. If a covered individual or firm does make such a contribution, a two-year “time out” is imposed during which the adviser cannot be compensated for advisory services to the relevant governmental entity. In essence, the Rule “seeks to prevent a registered investment adviser from improperly influencing a governmental entity’s choice of pension fund investment managers through the concerted use of campaign contributions made by that firm’s personnel to public officials in a position to influence that choice.”
In issuing the Rule, the Securities and Exchange Commission expressly disclaimed any intention of regulating independent expenditures – which, of course, are the only type of expenditures that super PACs may make. The Commission flatly stated that “the rule imposes no restrictions on activities such as making independent expenditures…” (p. 23), and further noted that “Citizens United deals with certain independent expenditures (rather than contributions to candidates), which are not implicated by our rule.” (p. 22 n. 68) (emphasis supplied). It would be difficult for the SEC to claim that the Rule does not regulate independent expenditures, yet somehow prohibits the giving of funds for that same purpose.
Moreover, the SEC could not adopt Dr. Holman’s interpretation of the law without raising significant due process concerns. A government agency may not state that an activity is lawful, and then act against those taking it at its word.
In fairness to Dr. Holman, the SEC’s Final Rule statement is lengthy, and some of the most important statements on this topic were placed in footnotes. There is no reason to believe he has read the relevant legal documents, or that he was doing anything more than stating Public Citizen’s preferred policy outcome. But therein lies the problem.
The FEC administers a statute that specifically addresses political contributions, and it unquestionably has the authority under that statute to regulate super PACs. The SEC administers a completely different set of statutes that say nothing about political activity.
As a result, concepts and policy preferences cannot simply be taken from the campaign finance context and imported willy-nilly into another. To take one example, federal contractors may not contribute to political parties, because a federal statute says so. The Investment Advisers Act contains no similar prohibition, and so advisers may generally contribute to political parties, a point recognized by the SEC. P. 46, n. 154 (“Contributions to political parties are not specifically covered by the definition and thus would not trigger the rule’s two-year time out unless they are a means to do indirectly what the rule prohibits if done directly (for example, the contributions are earmarked or known to be provided for the benefit of a particular political official)”).
The SEC is an agency with no expertise in managing political speech or association. Public Citizen’s approach, which seems to care little about who is regulating political speech so long as it is being regulated, ignores the substantial differences in mission, authority, and expertise between different federal agencies. This is but the most recent example of that flawed thinking.
